Enterprise data center users can potentially save up to $140.9 million with thorough due diligence in identifying markets that meet their business requirements and provide lower net tax burdens after incentives, relatively affordable power rates, favorable weather conditions, and greenfield space to build in a less expensive manner, according to a new report from CBRE […]

Smart Site Selection Can Save Data Center Users $141M Over 10 Years

Enterprise data center users can potentially save up to $140.9 million with thorough due diligence in identifying markets that meet their business requirements and provide lower net tax burdens after incentives, relatively affordable power rates, favorable weather conditions, and greenfield space to build in a less expensive manner, according to a new report from CBRE Group, Inc. These potential savings represent up to 52.1 percent of the $270.1 million average project cost for a typical 5-megawatt (MW) enterprise project in the U.S. over a 10-year period.

“The ever-increasing need for data exchange, storage and security is broadening demand for data centers in the U.S., but one solution does not fit all,” said Pat Lynch, managing director, Data Center Solutions, CBRE. “Capital and operating costs vary considerably by market, and non-monetary factors such as proximity to a headquarters location, fiber density and environmental and other risk factors can also drive enterprise site selection decisions.”

The CBRE study modeled the cost of constructing, commissioning, and operating a 5 MW data center for 10 years across 30 U.S. markets, and categorized markets into three cost bands (low, moderate and high) according to analysis of specific cost components including tax incentives, power, construction, land and labor.

Tax Incentives: Data centers are capital intensive and generate significant sales and property tax revenues for state and local jurisdictions. Increasingly, markets that seek to attract data centers are offering significant tax incentives to help reduce the total cost of operations for data centers. Only four of the 30 enterprise markets in CBRE’s study – Philadelphia, Southern California, Silicon Valley and Northern New Jersey – do not offer tax incentives to enterprise data centers. These markets also rank in the high-cost segment.

Power: Power costs average 13.2 percent of the total project cost over the life of the project, but vary from 6.5 percent in Quincy, Washington, to 21.3 percent in Boston. Quincy, Des Moines and Tulsa had the lowest power rates among the markets in the study. The most expensive power rates were in Boston, Southern California and Silicon Valley.

Construction Costs: Facility construction costs represent about 35 percent of the total project cost over the 10-year period, averaging $94.0 million and ranging from $77.5 million to $116.3 million. The most expensive markets in which to build a Tier III facility include Boston, Silicon Valley, Chicago, Philadelphia and Northern New Jersey. Facility construction was least expensive in Tulsa, Charlotte, San Antonio, Jacksonville and Dallas.

Land Costs: Land acquisition for greenfield development represents the smallest expense component in the analysis at just 2.5 percent of the total project cost on average, but also varies the most among all the cost factors. Across the 30 markets the average price per sq. ft. was $7.65, but ranged from less than $1.00 per sq. ft. in Kansas City, Missouri, to $38.72 per sq. ft. in Southern California.

Labor: With a need for critical environment engineers that provide round-the-clock coverage, labor costs average $13.2 million over a 10 year-period and account for an average of 4.9 percent of the total project cost. Market-rate labor costs were lowest in the majority of Central region markets, highest in Northern New Jersey and Boston, and above-average in Philadelphia, Chicago, Houston, Dallas, Cheyenne, Quincy, Silicon Valley and Southern California.

“The large price differential between high- and low-cost markets suggests that prudent site selection efforts should not overlook the land acquisition component,” said Jessica Ostermick, director of research and analysis, CBRE. “In addition, while labor costs rank relatively low among our factors, it is important to also consider the availability of engineering staff and construction labor—particularly in less-developed and low-cost markets where the available talent pool is limited.”

“Our study also revealed a positive relationship between the size of a market’s population and its cost segment: the more populous markets tend to fall in the moderate- or high-cost segments,” said Jeff West, director of data center research, CBRE. “In fact, all of the moderate- and high-cost markets have populations greater than 1 million.”

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